With scant signs of buying support from any direction, traders are worried about the fate of the Rs 6.06 trillion ($93 billion) borrowing for the year starting April 1.

Modi government is counting on its market borrowings all the more this year as it aims to boost spending to create jobs and appeal to voters ahead of the general elections in 2019.(Dhiraj Singh/Bloomberg)

The government’s near-record bond sales begin in two weeks. The lingering question is who’s going to buy the securities.

While the seven-month sell-off in sovereign notes has spurred state-run lenders — the biggest holders — to stay away, global funds too have soured on rupee debt. With scant signs of buying support from any direction, traders are worried about the fate of the Rs 6.06 trillion ($93 billion) borrowing for the year starting April 1.

Poor demand signals more pain for the embattled market. Four of 10 fixed-income traders surveyed by Bloomberg News expect the benchmark 10-year yield to reach a three-year high of 8% next quarter in the absence of measures to stoke appetite. Surging yields will boost borrowing costs for Prime Minister Narendra Modi’s government, and may lead to a repeat of a recent situation when it had to pare the size of few auctions and scrap others.

“If it’s a normal bond supply calendar with no intervention whatsoever by the government or the RBI, then the yield is just a number, frankly,” said Suyash Choudhary, head of fixed income at IDFC Asset Management Co. in Mumbai. “It can easily go to 8% or 8.25%. Everyone’s suspicious of what happens once the new borrowings start.”

The longest run of losses since 1998 have been spurred by a vicious cocktail of rising debt supply, hardening global yields and the prospect of higher interest rates. Banks hold about 30% of the government bonds -- much more than the statutory requirement of 19.5% -- and have little incentive to add, according to Nomura Holdings Inc.

State-run lenders have been selling Rs 5.3 billion of government debt on average every day this year, data from the Clearing Corp of India (CCIL) shows. They bought notes worth Rs 368 million on average daily in 2017.

Modi’s government is counting on its market borrowings all the more this year as it aims to boost spending to create jobs and appeal to Indian voters ahead of the general elections in 2019. Any shortage could see the administration consider selling stakes in state-run companies, although executing those plans may prove to be challenging in a stock market that’s correcting sharply.

Traders say the bond market’s dynamics will now depend on what the central bank does -- it has so far been reluctant to play the role of a saviour -- and whether policy makers raise the investment cap for foreigners, currently at 5% of the total outstanding debt.

“The past reliance of Indian bond markets on banks suggest a new investor class is needed to absorb upcoming bond supply,” Nomura strategists including Vivek Rajpal in Singapore, wrote in a recent report.

The 10-year yield has climbed 111 basis points since end-July. It may reach 7.83% by the end of the next quarter, according to the median estimate in a Bloomberg survey. It rose two basis points to 7.58% on Monday.

Concerned by the sell-off, the finance ministry last week met primary dealers to assess the market’s mood before the debt auctions, which normally begin in the first week of April.

“The government will be too concerned about selling bonds at higher rates,” said Vijay Sharma, executive vice president for fixed-income at PNB Gilts Ltd. in New Delhi. Without “the RBI’s bond purchases or higher foreign limits, the market will find it very very difficult to absorb the borrowings.”